T. Cliff

The Problem of the Middle East

Part I
Historical Background

Chapter III
The Conquest of Egypt by the European Usurers

The great structure that Mohamed Ali had built was destroyed; but the pressure and influence of the West could not be obliterated. As clear illustration of this we need but note that the first railway to be built in Africa or the East, and one of the first outside Europe, was constructed from 1851-56 between Alexandria and Cairo. The continued pressure of the West showed itself in the uninterrupted process of Egypt’s adaptation to the needs of foreign powers. Inland customs tariffs which hampered the development of commerce were abolished. All the octroi duties in the towns and the monopolies were cast aside. Taxes began to be collected only in money and not in kind, which increased the need of the peasants to sell their produce in the market. It was also decided that individuals and not villages should bear the tax burden, and that their collection should not be done by the sheikh of the village, but by a government tax collector. Thus the basis of private property in land was strengthened. All these were factors which drove the peasant to bring his produce to the market, which was exactly what the merchants and industrialists of the West wanted. After the completion of the Alexandria-Cairo railway, another one was built connecting Cairo and Suez, thus making rail travel from Alexandria to Suez possible. Suez harbour was provided with a large graving dock for shipping repairs, and what was most important, the digging of the Suez Canal was begun.

The process of Egypt’s adaptation to the needs of the European Powers received its most extreme form during the rule of Ismail (1863–79), a son of Mohamed Ali. As we have seen the pressure of international factors can impose progressive tasks on a more backward class. Mohamed Ali tried to accomplish bourgeois tasks basing himself upon feudal relations of production and society. He tried, unsuccessfully, to turn Egypt into a modern independent state. Ismail, under pressure of the same international factors, followed a different path. He developed Egyptian economy very one-sidedly in conformity with the needs of Lancashire, preserving the general economy of the country in its state of backwardness. The modern train transported cotton which was produced by the most primitive of wooden ploughs. From the modern canals the water continued to be drawn with the help of the ‘shaduf’ which is not different from the pump of Pharaonic times. And not only this but the actual building of the railways and the digging of the canals were connected with the most brutal plunder of the entire economy and population, the latter remaining under obsolete modes and relations of production. Plunder bordered on squandering and merged with it, and both accompanied a flourishing age which flowered from a bed of the most wretched poverty and misery. Ismail managed during his reign to waste a sum of tens of millions which was collected with the utmost brutality from a poverty-stricken population.

Great is the squandering of an autocratic king who knows not the differences between the state treasury and his own private treasury, and who is not obliged to give any account of his doings to anyone. Such squandering is increased when the ruler comes in contact with the mode of life which is the fruit of high development while his own country is yet entirely backward. Ever greater is its magnitude when there is no clear boundary dividing the personal desire of the king ‒ spending on luxuries ‒ from economic undertakings, when the pomp is mingled with creative activity. And yet more boundless is it when he can draw money not only from the taxes of the people but also from loans, especially of great bankers who are only too ready to give them when they see an entire state, an entire country before them as a guarantee of the replenishing of their funds and the interest on them. All these conditions existed during Ismail’s reign. British and French banks and Egyptian autocracy allied together in the spoliation of the Egyptian population.

When Ismail rose to power, Egypt’s debt was £E 12 millions. When he was deposed after seventeen years, it was no less than £E 98,376,660. During those same years the income of the state treasury from taxes was £E 119,287,015. Besides this Ismail had an annual income of £E 700 thousand <p. 19> from his private domains. If we remember that the total amount spent on education during the entire period was no more than one million pounds, and that an even smaller sum was spent on health, we can realise how great was the sum at the disposal of Ismail for squandering on luxuries and the various projects he undertook.

Some facts will throw light on the luxuries the court indulged in. The ceremony of the opening of the Suez Canal cost five million pounds. Millions of pounds were spent on getting titles, the right of succession for his son, etc., sums which went into the ‘Sublime Porte’. The princes and princesses did not lag far behind Ismail, one princess, for instance, running up a bill for £150,000 with one French dressmaker. Millions of pounds were spent on the wars ‒ the Crimean war and the Cretan war, which the Sultan conducted, and Egypt’s war of expansion in Sudan and Abyssinia. Most of Ismail’s expenses, however, were given out in connection with works of construction charged for at exorbitant prices: digging the Suez Canal, building railways, building Alexandria’s harbour and setting up sugar factories. A great amount was also spent on paying the interest on debts he made. Besides which Ismail was forced from time to time to pay compensation to foreign companies and persons for imaginary damage caused them.

It is safe to assume that of the millions squandered by Ismail during his 17 years of rule, only a small portion was enjoyed by the Egyptian autocracy while most of it by far fell into the pockets of European bankers, suppliers and contractors.

It would be very difficult to unravel the tangle of robberies and thefts from Egypt carried out during Ismail’s time.

Firstly let us take the ‘compensation’ Egypt was forced to pay. The most outstanding example of this was in connection with the construction of the Suez Canal. In the contract between him and the Suez Company, Ismail’s processors in whose time the Suez Canal was begun, from the beginning, under pressure of the company, showed great indulgence. Egypt was to supply 6,000 corvée labourers. To this gift Ismail added a promise to build at his own expense, a fresh-water canal from the Nile to Ismailia (whose construction cost £125,000). He also agreed to give the lands juxtaposing the fresh-water canal to the company. The Suez Company, however, was not satisfied as it found that it was more worth its while to employ Egyptian workers getting 2.5‒3.00 piasters a day than to use expensive machines which required the supervision of skilled European workers. The Company therefore employed not 6,000 Egyptian workers, as agreed, but 60,000. When Ismail protested against this, the Company demanded that the matter be put for arbitration before Napoleon III. Ismail was compelled to agree. The decision was a very severe blow for Egypt. It was decided that the conscription of the corvée labour for the building of the canal was to be abolished, and the company was compelled to employ some European workers besides the Egyptian hired labour, and to use machinery. But the increase in the expenditure on the digging of the canal thus caused, estimated at 38 million francs, Ismail was obliged to pay. The company was good enough to agree not to take the land juxtaposing the fresh-water canal, in exchange for compensation of 30 million francs. Ismail also had to pay 24 million francs ‘damages’. The total compensation he had to pay for these imaginary damages amounted to 84 million francs. The end of the affair, after Ismail had been driven to sell his shares in the Suez Company to Disraeli, was that all that remained to him from its construction was a debt amounting to twelve million pounds, besides the accumulating compound interest on it. According to a report of Cave, a member of Disraeli’s cabinet who investigated Egypt’s financial position on behalf of the British government, the total sum invested in the Suez Canal by the Egyptian government besides the land given free, and the labour given semi-free, amounted to £E 16,075,000. It could therefore justifiably be said by two professors that the Suez Canal was ‘the greatest injury done to this country in its recent history. The Suez Canal has an ignoble history and it is that which brought Egypt into financial difficulties and prepared the ground for the British conquest.’ (Rashed al-Barawi & Muhamed Hamza Alish, op.cit., p. 73)

Very often those who demanded ‘damages’ did not even pretend that these were connected with any constructive undertaking. Hence Lord Milner could write:

‘The great object of securing a concession in those days was, not to carry on a useful enterprise, but to invent some excuse for throwing it up, and then to come down upon the government for compensation. Moreover <p. 20> almost any loss which befell a foreigner or any injury which he sustained, even if due entirely to accident or to his own fault, was made the occasion for demanding an indemnity. If his property was stolen, the government was to blame for not keeping sufficient police. If his boat ran ashore in the Nile the government was to blame for not dredging the river. ‘Please shut that window,’ Ismail Pasha is related to have said to one of his attendants during an interview with some European concessionaire, ‘for if this gentleman catches cold it will cost me £10,000.’ And this was hardly an exaggeration. When the Mixed Tribunals came into existence there were £40,000,000 of foreign claims outstanding against the government. What the real amount of injury which they represented was, may be judged from the fact that in one case, while 30,000,000 francs had been demanded, the Mixed Courts awarded the plaintiff £1000, i.e. less than one-thousandth of the claim. (Viscount Milner, England in Egypt, XIIIth edition, London 1926, p. 44, first published 1892)

The builders of the various enterprises charged greatly exaggerated prices. Thus for instance the building of the Alexandria harbour, which should have cost, according to experts, only £1,400,000 cost £2,542,000.

Another branch of squandering and spoliation was the construction of altogether superfluous enterprises. For instance Ismail built 64 sugar refining factories, of which three-quarters never started to work at all or stopped working at the outset. For while the production of raw sugar did not exceed 2.5 million cantars, the 17 first factories he erected could refine 2.55 million cantars.

An ‘honoured’ place in the spoliation of the country was taken by the financial robbery connected with the giving of loans. The interest paid by Ismail was exorbitant and was in practise deducted from the loan when it was issued. Thus of the loans he contracted from 1862 to 1873 he received the following:–

Year

Lender

Nominal Value
£

Net Amount Rec’d
£

Rate of
Deduction

1862

Frühling & Goschen

3,293,000

2,640,000

18.5

1864

Frühling & Goschen

5,704,000

4,864,000

14.9

1865

Anglo-Egyptian

3,387,000

2,750,000

18.8

1866

Frühling & Goschen

3,000,000

2,640,000

12.0

1867

Banque Imp. Ottom

2,080,000

1,700,000

18.3

1868

Oppenheim

11,890,000

7,193,000

39.5

1870

Bischoffsheim

7,143,000

5,000,000

30.0

1873

Oppenheim

32,000,000

19,973,000

37.6

Total

68,497,000

46,760,000

The rate of deductions thus increased with Ismail’s progressive sinking into debt.

The reasons given for these deductions were many and various. Thus, for instance, the interest on the loan of £32,000,000 which Ismail took in 1873 from Oppenheim, was only 7 per cent, and amortization 1 per cent. But as a guarantee against risk, the banking consortium deducted £12,000,000. More than this, it forced Ismail to take as payment 9 million treasury bills from his floating debt itself, pricing it at 93, while the loan itself was intended as redemption of his debt. The consortium itself took the treasury bills at the price of 65.

When as a result of all these robberies, Ismail could not get more loans for long periods, and could not even pay the interest on those he had taken, he embarked upon a disastrous policy, which Milner describes thus:

‘The short loans constantly prolonged on ruinous terms, the anticipation of revenue, the staving off of urgent creditors by the delivery of depreciated securities, all destined to be ultimately paid off at par (in one instance a debt of £72,000 was redeemed by the surrendering of not less than £230,000 of Unified Stock,) such and suchlike follies succeeded one another thick and fast during the disastrous years 1877, 1878, 1879.’ (Ibid., pp. 180–181)

Egypt’s sinking into debt was accompanied by a certain economic development which was mainly adapted to the needs of the English textile industry; the digging of canals, construction of railways, bridges and roads etc. Of the sum the Egyptian treasury sank into such undertakings it is impossible to calculate what proportion fell into the hands of foreign contractors, merchants, high Egyptian officials etc. Lord Milner’s comment might give some <p. 21> idea of the state of affairs:

‘I doubt myself whether the portion of Ismail’s loans devoted to works of permanent utility ‒ always excluding the Suez Canal ‒ was equal to 10 per cent of the amount of debt which he contracted.’ (Ibid., p. 179)

Two undertakings of lasting value he did accomplish: the construction of the railways and the widening of the network of irrigation canals. On Ismail’s rise to power the rail mileage was 243. the only lines existing were Alexandria-Cairo, Cairo-Suez, Benha-Zagazig. During his reign 910 miles of railway were constructed. A network connecting all the main Delta towns was built, and there is a no doubt that this encouraged the extension of cotton production, as it created means of transporting the cotton to Alexandria. The construction of a railway from Cairo to Upper Egypt was also begun. In 1874 the line connected up Fayum. Irrigation canals dug during Ismail’s time totalled up to a length of 8,400 miles. These canals made possible an increase in the cultivated area, especially of summer crops, whose yield rose rapidly.

Egypt’s economy was thus adapted to the needs of Lancashire. At the same time as the general cultivated area during the 28 years 1852–80 rose from 4,160,169 to 4,719,899 (i.e. an increase of 13.4 per cent), cotton cultivation increased almost tenfold as export figures show:–

Cotton Exports

Cantars

£E

1850

364,816

857,318

1860

501,415

1,203,396

1870

1,351,797

6,083,086

1880

3,000,002

8,712,000

Following the rise in cotton production, there was a great rise in the total export of the country. At the same time imports lagged much behind exports, as can be seen from the following table (£E,000):–

Exports

Imports

Difference between
Exports & Imports

1824

2,127

1,009

1,118

1836

2,142

2,612

− 470

1850

2,004

2,662

422

1860

2,536

2,605

− 69

1870

8,681

4,503

4,178

1880

12,983

7,018

5,965

During the 17 years of Ismail’s reign the Egyptian export exceeded the import by £116,458,000. During this time the import of specie exceeded the export by £33 millions. We may safely assume that the difference between the export of merchandise and the surplus of import of specie, i.e. a sum of about 83 millions, went mainly into the pockets of the moneylenders and other foreign plunderers. [1]

England took a decisive place both in Egypt’s exports and imports. She bought four-fifths of Egypt’s cotton and the greater part of the cereals Egypt exported. She supplied Egypt with nearly all cotton goods she needed and many other manufactured goods. Eighty percent of Egypt’s exports were sent to England, and 44 per cent of her imports came from there. Second in importance but far behind was France, trade with whom made up 10 per cent of Egypt’s exports and 11 per cent of her imports.

The correspondent of the Times in Alexandria in those days shut his eyes to the singular character of Egypt’s progress during that period when he wrote that ‘Egypt is an outstanding example of progress. In 70 years she made as much progress as other countries in 500.’ (6.1.1876).

This ‘progress’ was revealed in the development of a few sectors adapted to the needs of a capitalist England and France ‒ communications, irrigation, cotton ‒ and the flow of the country’s income into the pockets of bankers and speculators.

And it was this ‘progress’ which caused Egypt to hurtle towards bankruptcy. In order to prevent such a calamity Ismail wanted to unify all the different debts into one large debt, and to lower the rate of interest. It was the opinion also of the British expert, Sir George Eliot, that these two acts were essential to prevent Egypt’s bankruptcy. He spoke to the following effect in the House of Commons:

‘The findings of my research … are that Egypt’s situation is far from being desperate. Her conditions are healthy, only her income should be used for the payment of a fair interest on her debts. I mean a reduced rate of interest … I don’t doubt that, should the viceroy accept my plan, Egypt will be fully able to pay all the interest and amortization, whereby the whole debt will be paid off in 65 years and in addition there will be a surplus left over for the management of a proper administration of the country … I am fully convinced that Egypt is healthy to the core. She has great riches which have increased very much, and which look as if they will go on increasing.’ (Rothstein, Die Englander in Ägypten. From Ergänzungshefte zur Neuen Zeit. (14 July 1911, p. 7)

<p. 22> The British Government, however, wanted to prevent Egypt’s financial recovery unless she became a British protectorate. And it was for this purpose that Cave, a member of Disraeli’s cabinet was sent to Egypt. His proposals would have been ruinous for the country and when Ismail refused them the British government published Cave’s report, which caused the tottering of Egyptian securities. As a result of the panic caused, credit to Egypt was entirely cut off. Ismail could not renew his treasury bonds on other than wholly ruinous terms. On April 6, 1876 the treasury bonds were suspended and the state declared insolvent.

By wily intrigue and the pressure of the stock exchange the British and French creditors succeeded in forcing Ismail to take a new loan of £17 millions to cover the floating debt, at a premium of 10 per cent. Interest at 5 per cent was imposed on this sum and on the debt of £8.8 millions on the private property of Ismail. Various loans in which the Bank of Frühling and Goschen were particularly interested, were excluded from the Unified Debt and on them interest at 10–12 per cent was imposed. The rate of interest on the rest of the debt of £59 millions was 7 per cent. The total annual interest Egypt had to pay was £6.5 millions. In order to get an idea of the burden weighing upon Egyptian taxpayers we must remember that in those same years (1876–80) the average annual income of the treasury was not more than 8.3 millions and imports not more than £4.9 millions.

Two control institutions were set up. The one, the ‘Caisse de la Dette Publique’, was under the directorship of foreign commissioners who had a mandate to get, directly from the local authorities, the income intended to service the debt, and out of this to pay the creditors. The other was to control the income and expenditure of the Egyptian treasury, for which two General Controllers, one English and one French, were appointed.

If until now Ismail had paid part of the income on his debts by directly and immediately making new ones, now it was the masses of the people who had to bear the whole burden of the interest. This was the financial ‘recovery’ which the English and French officials brought with them.

The meagre budgets of education, health and other branches of public service were cut down to the utmost. The salaries of officials were reduced, and payment often deferred for months at a time. Part of the army was dismissed. Everything possible was turned into a concession ‒ even the export of bones from the tombs of the ancients, and the use of the Pyramids as a storehouse for phosphates. Customs and rail duties were enormously raised, and the harvest stolen from the peasants ‒ all for the payment of the Coupon in time. The British General Consul wrote in 1877:

‘Egypt has paid within the last six months roughly 6 million pounds to her creditors. This achievement proves the efficiency of the new control. I am afraid, however, that this success has been achieved only by ruinous sacrifices of the peasants. Corn on the fields has been put to auction by <p. 23> force, taxes have been raised in advance, and the native officials, whom it is an essential premise of any good administration to pay punctually, have been sacrificed for the sake of coupons, and their salaries are badly in arrears.’ (Rothstein, Ibid., p. 9).

Rothstein, who quotes this, adds further that, when in many regions the peasants did not pay their taxes, the government in exchange for £500,000 gave an English speculator the right to expropriate the total harvest of those peasants, so that the correspondent of the Times was forced to admit that ‘if you remember the impoverished, overworked, undernourished peasants in their wretched cottages who are slaving day and night in order to fill the pockets of the creditors, the punctual payment of the coupon ceases to be a cause for satisfaction.’ (Rothstein, Ibid., p. 9)

And Rothstein writes:

‘The year 1878 was particularly horrifying. The Nile was very low in the autumn, 800,000 acres of arable land being left unirrigated and on the remaining lands the cotton harvest, which was the main source of wealth, turned out very poor. Moreover a terrible cattle disease broke out, and to this was added a terrible crisis in the cotton market. As a result famine raged over the whole of Upper Egypt, such as had not been known for generations. Women and children wandered begging from farmstead to farmstead, from village to village, and devoured the garbage and refuse in the streets. It was calculated that in that summer 10,000 people perished from hunger and many thousands more died of dysentery and similar hunger diseases. But Ismail implored in vain that a delay in the payment of the coupons be allowed at least for this once: the British government refused to lend an ear, and two of the coupons, in May and June, were paid in time. Mr Vivian, the British consul, however, wrote to London: ‘I am afraid that the European administration sanctifies unconsciously the complete ruination of the peasants, the producers of the riches of the country, for which the British bear, in my opinion, a grave responsibility.’ (Rothstein, Ibid., p. 9)

The opinion of the British representative on the Caisse de la Dette, Major Baring, afterwards Lord Cromer, was different. Even though he quotes Sir Alexander Baird, when he describes the hunger of the masses, who ‘were driven to satisfy their cravings with the refuse and garbage of the streets,’ he could nevertheless swear that the Egyptian peasant could pay all. He was brazenfaced enough to say that ‘it was clear that the interests of the bondholders and of the Egyptian taxpayers, if properly understood, were far from being divergent.’ (The Earl of Cromer, Modern Egypt, New York 1916, p. 39)

In 1878 an international commission was sent to investigate the financial and administrative situation of Egypt. Its report paints a very black picture of the position and recommends the establishment of a European liquidation committee. The way was now open before the European bankers for complete and direct control over the Egyptian state apparatus, which until now had remained in Egyptian hands. The British and French representatives established a cabinet consisting of a number of corrupt Egyptian personalities, in which the Englishman, Rivers Wilson, was Minister of Finance, and the Frenchman, de Blignières, Minister of Public Works. The rule of usurers over Egypt was now complete.

The bitterness of the people reached uncontrollable proportions. Under pressure of the masses and having no other alternative first the officers and then the Khedive, supported by the notables, revolted; the ministry constituted under British pressure was dismissed and a new parliament convened which decided a new financial reform. The reply of the European Powers was not long in coming. In 1879 Ismail was deposed and succeeded by his son Tewfik who was simply a puppet in the hands of the two Controllers. They eventually had to acknowledge that there was a grave danger in weighing down further the yoke on the Egyptian people, for they were liable to break out in mass rebellion. The interest on the Unified Debt was accordingly lowered from 7 per cent to 5 per cent i.e. a reduction of about two million pounds. At the same time the right over the income from railways and telegraphs and the land tax of four provinces and various other sources of income were taken away from the state and transferred in toto to the Controllers. The correspondent of the Times could justifiably remark on March 27 1881:

‘I cannot help but finish my present letter with the remark that I am more inclined to congratulate the state’s creditors than the Egyptian peasants for the balancing of the accounts.’ (Rothstein, op. cit., p. 12)

After payment of the interest on the debt no more than one-third of the public income remained in the hands of the state. This situation led inexorably to the 1881 revolt.

Footnote

1. Besides this we must not forget that Egypt paid relatively high prices for the products she bought and received relatively low prices for what she sold.